Comerica Economic Weekly

The BLS reports that payroll employment increased by 146,000 jobs in November and the unemployment rate declined from 7.9 to 7.7 percent. According to the Bureau of Labor Statistics Hurricane Sandy “did not substantively impact the national employment and unemployment estimates for November.” This is a head scratcher. The cause of the apparent disconnect in the employment data from at least a significant short-term disruption to labor markets along the East Coast is likely due to technical issues that do not reflect the true impact of the storm on the U.S. economy. The take-away from the November employment report is simply that there is no clear trend in the data; lots of noise, little signal. We cannot definitely say whether labor market conditions improved or deteriorated through November. My expectation is that the underlying trend on payroll job growth is in the range of 120,000 to 150,000 jobs per month for the fourth quarter. The unemployment rate would decline only slowly with that rate of payroll job growth. Upside risk to that jobs outlook comes from gains related to improving housing markets, a gradual broadening of momentum in the service sector and very accommodative monetary policy. Downside risk comes from increasingly defensive behavior on the part of many businesses in anticipation of economic drag stemming from the Fiscal Cliff. According to the University of Michigan survey, consumer confidence fell hard in early December, down to 74.5 from the previous 82.7. Consumer expectations about future conditions were more pessimistic in early December. Perhaps the recently intensified media coverage of the Fiscal Cliff is focusing attention now that the November election is over. Nonetheless, auto sales for November were an upside surprise, hitting a 15.5 million unit rate after October’s slump to 14.2 million units. The surge in auto sales for November reflects the quick replacement of storm-damaged vehicles that will likely not be sustained in the months ahead. The ISM’s Manufacturing Index for November fell to 49.5, indicating a slight contraction in manufacturing activity. This was probably storm related. Prior to Sandy, in September and October, the ISM Manufacturing Index had recovered from its summer slump. The ISM Non-Manufacturing Index for November came in better than expected at 54.7 percent. Both the ISM manufacturing and non-manufacturing indexes are consistent with a weak-to-moderate GDP expansion in the current fourth quarter.

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